Unum Group (UNM)

Q3 2011 Earnings Call

November 02, 2011 9:00 am ET

Executives

Kevin P. McCarthy - Executive Vice President, Chief Executive Officer of Unum US and President of Unum US

Richard McKenney - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Thomas A. H. White - Senior Vice President of Investor Relations

John F. McGarry - Executive Vice President, Chief Executive Officer of Unum UK and President of Unum UK

Thomas Watjen - Chief Executive Officer, President and Director

Analysts

Colin W. Devine - Citigroup Inc, Research Division

Mark D. Hughes - SunTrust Robinson Humphrey, Inc., Research Division

Thomas G. Gallagher - Crédit Suisse AG, Research Division

A. Mark Finkelstein - Evercore Partners Inc., Research Division

Randy Binner - FBR Capital Markets & Co., Research Division

Robert Glasspiegel - Langen McAlenney

Christopher Giovanni - Goldman Sachs Group Inc., Research Division

Eric N. Berg - RBC Capital Markets, LLC, Research Division

Jeffrey R. Schuman - Keefe, Bruyette, & Woods, Inc., Research Division

John M. Nadel - Sterne Agee & Leach Inc., Research Division

Steven D. Schwartz - Raymond James & Associates, Inc., Research Division

Jamminder S. Bhullar - JP Morgan Chase & Co, Research Division

Presentation

Operator

Good day, everyone and welcome to the Unum Group Third Quarter 2011 Earnings Results Conference Call. Just a reminder, today's call is being recorded. At this time, for opening remarks and introductions, I'll turn the conference over to the Senior Vice President, Investor Relations, Mr. Tom White. Please go ahead, sir.

Thomas A. H. White

Great. Thank you, Debbie. Good morning, everyone, and welcome to the Third Quarter 2011 Analyst and Investor Call for Unum Group.

Our remarks this morning will include forward-looking statements which are statements that are not of current or historical fact. As a result, actual results might differ materially from results suggested by these forward-looking statements.

Information concerning factors that could cause results to differ appears in our filings with the Securities and Exchange Commission and are also located in the sections titled Cautionary Statement Regarding Forward-looking Statements and Risk Factors in our annual report on Form 10-K for the fiscal year ended December 31, 2010, and in our subsequently filed Forms 10-Q. Our SEC filings can be found in the Investors section of our website at www.unum.com.

Also I'd remind you that statements in today's call speak only as of the date they are made, and we undertake no obligation to publicly update or revise any forward-looking statements. A presentation of the most directly comparable GAAP measures and reconciliations of any non-GAAP financial measures included in today's presentation can be found on our website also in the Investors section.

So participating in this morning's conference call are Tom Watjen, President and CEO; and Rick McKenney, Executive Vice President and CFO; and also our business segment presidents, Kevin McCarthy for Unum U.S; Randy Horn for Colonial Life; and Jack McGarry for Unum U.K.

And now I'll turn the call over to Tom Watjen, Tom?

Thomas Watjen

Thank you, Tom, and good morning. Although a little choppy this quarter, actually, I'm pretty pleased with our quarter. Because despite the pressures that we saw in several of our product areas and most notably, in the U.K., our earnings per share grew 9% in the quarter.

Before I turn things over to Rick and Tom, I want to touch on actually a few of the highlights. First, despite continued challenging market conditions, our investment portfolio remains in excellent shape. Today's low interest rates remain a headwind. But our portfolio yields remain generally stable again this quarter. Despite this, we have already begun to reflect today's lower interest rates in certain of our businesses and reduced the new claim discount rate for our U.S. Group Disability business by 25 basis points.

Second, our capital position remains solid with a weighted average risk-based capital ratio of 396% at the end of the third quarter. Now our holding company's cash and marketable securities position at over $600 million, providing a solid financial foundation for the company.

Third, with respect to our share repurchase activity. Given the weight gains in our stock this past quarter, we stepped up our stock buyback activity with a total of $250 million repurchased this quarter.

Over the past year and a half, we have repurchased $975 million of stock and reduced our share count by 12%. And since the fourth quarter of 2007, we have repurchased almost $1.7 billion of stock, reducing our share count by 19%. At over the same period, we've raised our quarterly dividend by about 40%, while all of the same time remaining financially -- in a very solid financial position.

And finally, despite the difficult market conditions, I'm pleased that we continue to see modest growth in most of our target market. Unum US reported growth in new sales of 10% this quarter, with 12% growth in core market sales and 16% growth in voluntary benefits sales.

Sales at Colonial Life were up almost 4% in total and core commercial market sales grew 7%. Sales growth in the U.K. remains challenging, as we continue to raise prices on new and existing business.

In summary, despite the pressure we saw on parts of our businesses this quarter, particularly in our U.K. business, I'm generally pleased with our performance.

Looking ahead, we expect the environment to remain very challenging, with continued pressure from persistently high unemployment and low interest rates. We continue to believe that we are well-positioned for this environment and we will continue to take the actions needed to deliver value for our customers and solid financial results for our shareholders.

Now I'll ask Tom White to provide an overview of our operating results this quarter. Tom?

Thomas A. H. White

Great. Thanks, Tom. Net income for the third quarter was $205.6 million or $0.69 per diluted common share compared to net income of $220.8 million or $0.68 per diluted common share last year. Included in the results for the third quarter of 2011, our net realized after-tax investment losses of $15.9 million or $0.05 per diluted common share, compared to net realized after-tax investment gains of $0.9 million or less than $0.01 per diluted common share in the third quarter of 2010.

Net realized after-tax investment losses for the third quarter 2011, included an after-tax loss of $21.8 million resulting from changes in the fair value of an embedded derivative in a modified coinsurance contract compared to an after-tax gain of $1.1 million in the year-ago quarter.

Excluding these items, after-tax operating income was $221.5 million for this quarter or $0.74 per diluted common share, compared to $219.9 million or $0.68 per diluted common share in the year-ago quarter.

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